Model Portfolio Update: September 2008

March 29, 2009 by dopplervalueinvesting

The final contents of the Doppler Model Portfolio for August 2008 were:
$61,893.15 USD in the Doppler Treasury Money Market Fund
$80.188.85 HKD in the Everbank Hong Kong Dollar CD ($10,271.14 USD)
2 shares of BRKB ($7804.00 USD)
222 shares of DFJ ($9031.85 USD)
103 shares of FXY ($9439.95 USD)

The total market value of the Doppler Model Portfolio at the end of August 2008 was $98,440.09 USD.

The 1-month Treasury Bill yielded an average of 1.679% in August 2008, and the 3-month Treasury Bill yielded an average of 1.89% in June 2008. The average of these two figures is 1.785%, and subtracting .3% from this gives us 1.485%. So the Doppler Value Treasury Money Market Fund yielded 1.485% during September 2008. The credited balance was $61,893.15 USD for the entire month, so $75.54 of interest accrued during the month (roughly $2.52/day). This brought the balance in the Doppler Treasury Money Market Fund to $61,968.69 USD.

At the beginning of the month, the Everbank Hong Kong Dollar CD had a credited balance of $80,151.52 HKD and accrued interest of $37.33 HKD. Interest continued to accrue at 1.00%, or an additional $65.88 HKD (about $2.20/day). The Hong Kong Dollar CD ended the month with an accredited balance of $80151.52 HKD, accrued interest of $103.21 HKD, and a total balance of $80,254.73 HKD. At an exchange rate averaging 7.7701 HKD/USD on the last day of September, the total balance in the Everbank Hong Kong Dollar CD was $10,328.66 USD.

At the end of September 2008, the 2 shares of BRKB had a market value of $8,790.00 USD, the 222 shares of DFJ had a market value of $8,455.54 USD, and the 103 shares of FXY had a market value of $9,669.95 USD.

The final contents of the Doppler Value Model Portfolio for September 2008 were:
$61,968.69 USD in the Doppler Treasury Money Market Fund
$80,254.73 HKD in the Everbank Hong Kong Dollar CD ($10,328.66 USD)
2 shares of BRKB ($8,790.00 USD)
222 shares of DFJ ($8,455.54 USD)
103 shares of FXY ($9,669.95 USD)

The total market value of the Doppler Value Model Portfolio at the end of September 2008 was $99,212.84 USD, a rise of .8% from the market value of $98,440.09 at the beginning of the month.

Model Portfolio Update: August 2008

September 26, 2008 by dopplervalueinvesting

The final contents of the Model Portfolio for July 2008 were:
$61,820.48 USD in the Doppler Treasury Money Market Fund
$80,120.85 HKD in the Hong Kong Dollar CD ($10,267.43 USD)
2 shares of BRKB ($7658.00 USD)
222 shares of DFJ ($9463.86 USD)
103 shares of FXY ($9519.26 USD)
The total value of the Model Portfolio at the end of July 2008 was $98,729.03 USD.

The 1-month Treasury Bill yielded an average of 1.604% in July 2008, and the 3-month Treasury Bill yielded an average of 1.764% in May 2008. The average of these figures is 1.684%, and subtracting .3% gives us 1.384% as the yield on the Doppler Treasury Money Market Fund for August 2008. The credited balance was $61,820.48 USD every day of the month, so the accrued interest was $72.67 USD (around $2.34 USD/day). The final cash balance for August 2008 was $61,893.15 USD.

On Friday, August 15th, the Everbank Hong Kong Dollar CD was rolled over into a new CD that matures on Friday, November 14th, with the yield unchanged at 1.00%. From August 1st-14th, an additional $30.67 HKD (about $2.19 HKD/day) of interest accrued. Since we ended July 2008 with $170.85 HKD in accrued interest, the total accrued interest for the term of the old CD was $201.52 HKD. Adding this to the already credited balance of $79950.00 HKD brings us a new credited balance of $80,151.52 HKD to roll over into the new CD and resets the accrued interest to $0.00 HKD. From August 15th-31st, $37.33 HKD of interest accrued (roughly $2.20 HKD/day). This brings the total balance in the Hong Kong Dollar CD at the end of August 2008 to $80.188.85 HKD. At an exchange rate of 7.80720 HKD/USD, this is the equivalent of $10,271.14 USD.

At the end of August 2008, the 2 shares of BRKB had a market value of $7804.00 USD, the 222 shares of DFJ had a market value of $9031.85 USD, and the 103 shares of FXY had a market value of $9439.95 USD.

The final contents of the Doppler Model Portfolio for August 2008 were:
$61,893.15 USD in the Doppler Treasury Money Market Fund
$80.188.85 HKD in the Everbank Hong Kong Dollar CD ($10,271.14 USD)
2 shares of BRKB ($7804.00 USD)
222 shares of DFJ ($9031.85 USD)
103 shares of FXY ($9439.95 USD)

The total market value of the Doppler Model Portfolio at the end of August 2008 was $98,440.09, a drop of .3% from the market value of $98,729.03 USD at the start of the month.

Model Portfolio Report for July 2008

September 24, 2008 by dopplervalueinvesting

The final contents of the Model Portfolio for June 2008 were:
$61,756.59 USD in the Doppler Treasury Money Market Fund
$80,052.95 HKD ($10,258.33 USD) in the Everbank Hong Kong Dollar CD
2 shares of BRKB ($8024.00 USD)
222 shares of DFJ ($9801.30 USD)
103 shares of FXY ($9671.70 USD)

The final value of the Doppler Model Portfolio for June 2008 was $99,511.92 USD.

The 1-month T-Bill yielded an average of 1.724% in June 2008, and the 3-month T-Bill yielded an average of 1.312% in April 2008. The average of these figures is 1.518%. Subtracting .3% gives us 1.218%. Thus, the yield of the Doppler Treasury Money Market Fund for July 2008 is 1.218%. The credited cash balance was $61,756.59 USD for the entire month, so the accrued interest was $63.89 USD (around $2.06 USD/day), bringing the total at the end of the month to $61,820.48 USD.

The credited balance of the Hong Kong Dollar CD remained at $79,950 HKD for the entire month. We entered the month with $102.95 HKD of accrued interest and added an additional $67.90 HKD of accrued interest. This brings the total balance in the Hong Kong Dollar CD to $80,120.85 HKD. At the exchange rate of 7.80340 HKD/USD at the end of the month, the total final balance of the Hong Kong Dollar CD equated to $10,267.43 USD.

At the end of July 2008, the 2 shares of BRKB were worth $7658.00 USD, the 222 shares of DFJ were worth $9463.86 USD, and the 103 shares of FXY were worth $9519.26 USD.

The final contents of the Model Portfolio for July 2008 were:
$61,820.48 USD in the Doppler Treasury Money Market Fund
$80,120.85 HKD in the Hong Kong Dollar CD ($10,267.43 USD)
2 shares of BRKB ($7658.00 USD)
222 shares of DFJ ($9463.86 USD)
103 shares of FXY ($9519.26 USD)

The total value of the Model Portfolio at the end of July 2008 was $98,729.03 USD. Compared to the $99,511.92 USD value at the start of the month, this was a drop of .8%.

Model Portfolio Report for June 2008

September 24, 2008 by dopplervalueinvesting

The final contents of the Doppler Model Portfolio for May 2008 were:
$61,694.68 USD in the Doppler Treasury Money Market Fund
$79,987.24 HKD in the Everbank Hong Kong Dollar CD ($10,246.37 USD)
2 shares of BRKB ($8996.00 USD)
222 shares of DFJ ($10391.82 USD)
103 shares of FXY ($9749.18 USD)

The final total value of the Doppler Model Portfolio for May 2008 was $101,078.05 USD.

The 1-month T-Bill yield averaged 1.759% in May 2008, and the 3-month T-Bill yield averaged 1.284% in March 2008. The average of these two figures is 1.521%, and subtracting .3% from this gives us 1.221%. Thus, the yield of the Doppler Treasury Money Market Fund was 1.221% for June 2008. The credited cash balance for the entire month was $61,694.68 USD, so the accrued interest was $61.91 USD (roughly $2.06 USD/day). This brought the final cash balance for June 2008 to $61,756.59 USD.

The credited balance of the Hong Kong Dollar CD remained at $79,950 HKD for the entire month. We entered the month with $37.24 HKD of accrued interest. An additional $65.71 HKD of interest accrued during the month (roughly $2.19 HKD/day), bringing the total accrued interest to $102.95 HKD and the total balance to $80,052.95 HKD, worth $10,258.33 USD at the rate of 7.8037 HKD/USD.

At the end of June 2008, the 2 shares of BRKB were worth $8024.00, the 222 shares of DFJ were worth $9801.30, and the 103 shares of FXY were worth $9671.70.

The final contents of the Model Portfolio for June 2008 were:
$61,756.59 USD in the Doppler Treasury Money Market Fund
$80,052.95 HKD ($10,258.33 USD) in the Everbank Hong Kong Dollar CD
2 shares of BRKB ($8024.00 USD)
222 shares of DFJ ($9801.30 USD)
103 shares of FXY ($9671.70 USD)

The final value of the Doppler Model Portfolio for June 2008 was $99,511.92 USD, compared to $101,078.05 USD for the end of May 2008. This was a loss of around 1.5%.

Model Portfolio Report for May 2008

September 24, 2008 by dopplervalueinvesting

The Treasury Bill data I use is at http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield_historical.shtml

The exchange rate I use for a given day is the average figure available at http://www.oanda.com/convert/fxhistory .

The stock price I use for a given day is the closing price available at http://bigcharts.marketwatch.com/historical/

The 1-month US Treasury Bill had an average yield of 1.072% in April 2008, and the 3-month US Treasury Bill had an average yield of 2.174% in February 2008. The average of these two figures is 1.623%, and .3% less than this is 1.323%. So we assume that the Doppler Value Treasury Money Market Fund yielded 1.323% in May 2008. The credited cash balance was $100,000.00 USD on May 8th ($3.62 USD/day of uncredited accrued interest), $79,966.58 USD on May 9th-11th ($2.90 USD/day of uncredited accrued interest), $71,736.58 USD on May 12th-14th ($2.60 USD/day of uncredited accrued interest), and $61,636.58 USD from May 15th-31st ($2.23 USD/day of uncredited accrued interest). The accrued interest for the month was $58.10 USD. So adding the total accrued interest ($58.10 USD) to the credited cash balance ($61,636.58 USD) brings the final cash balance of May 2008 to $61,694.68 USD.

The portfolio owned $0 HKD from May 8th-14th and $79,950 HKD from May 15th-31st. At an interest rate of 1%, interest accrued at the rate of $2.19 HKD/day for a total of $37.24 HKD. Adding the $37.24 HKD of accrued interest to the credited CD balance of $79,950 gave us a final balance of $79,987.24 HKD, worth $10,246.37 USD.

At the end of May 2008, the 2 shares of BRKB at $4498.00/share were worth $8996.00. The 222 shares of DFJ at $46.81/share were worth $10391.82. The 103 shares of FXY at $94.6522/share were worth $9749.18.

The final contents of the Doppler Model Portfolio for May 2008:
$61,694.68 USD in the Doppler Treasury Money Market Fund
$79,987.24 HKD in the Everbank Hong Kong Dollar CD ($10,246.37 USD)
2 shares of BRKB ($8996.00 USD)
222 shares of DFJ ($10391.82 USD)
103 shares of FXY ($9749.18 USD)

The final value of the Doppler Model Portfolio for May 2008 was $101,078.05, a return of nearly 1.1% in 24 days. Of course, as we now know, this wouldn’t last.

Hong Kong Dollar CD: rolled over at 1%

August 20, 2008 by dopplervalueinvesting

The previous Hong Kong Dollar CD from Everbank matured on Friday, August 15th.  By default, it rolls over into a new CD that matures on Friday, November 14th.  The interest rate remains unchanged, at 1%.

I’m OK and out of harm’s way

June 15, 2008 by dopplervalueinvesting

As you know, Cedar Rapids has been in the news, and this news has nothing to do with the Iowa caucuses, Ashton Kutcher, or Elijah Wood. Yes, the Cedar Rapids, Iowa flooding shatters all previous records. This is a disaster movie without the movie. Fortunately, I live on high ground and well out of harm’s way. Despite the indirect effects of the flooding, I am among the lucky ones.

I have never, ever in my life witnessed such widespread flooding or destruction. I grew up in Chicago’s southwest suburban Palos Hills. We never had flooding in our house, because we lived on high ground. There were several times that flooding struck parts of the Chicagoland area, but the flooding and its effects was very localized.

Cedar Rapids is not a small town – it has a population of around 120 thousand people, roughly on the order of Champaign-Urbana, Illinois (where I attended undergraduate school at University of Illinois). Most of downtown Cedar Rapids was flooded at the crest. All the neighborhoods bordering the Cedar River were flooded. Many smaller towns around Iowa are completely flooded. Although the water level is finally retreating, it will be many days before it returns below flood stage, and no property can be cleaned up until the floodwater has completely departed. At least 20 thousand people (or 1/6th of the Cedar Rapids population) have been evacuated from their homes.

Even those of us lucky enough to be out of harm’s way have still face hardships. All but one municipal water well is out of service, and that one working well is only at partial capacity. For the last few days and until just a few hours ago, we were ordered to use tap water for drinking only. We were told to avoid showers and even avoid flushing the toilet. Avoiding a shower isn’t that bad given that the weather is mild, so I’m glad this flooding hasn’t been accompanied by 90-degree heat. However, having to avoid flushing the toilet stinks – literally. I was about to buy a big bag of kitty litter (despite the fact that I am not owned by a cat) when I finally heard that more water capacity has been restored. We’re still far from full water capacity, but at least we can flush the toilets.

Driving around the STATE of Iowa is a challenge. The floodplains are SO big and the flooding so widespread that parts of even the Interstates are closed due to flooding. Here in Cedar Rapids, Interstate 380 is the only route over the Cedar River, because all of the other bridges (which are lower) are flooded. Nearly ever road crossing the Cedar River or Iowa River is flooded or even washed away. Even Interstate 80 has been engulfed by the Cedar River, and even Interstate 380 has been engulfed by the Iowa River. Anyone trying to cross Iowa from east to west on Interstate 80 has to take a long detour – north on US 61 to Dubuque, west on US 20 to Interstate 35, and south on Interstate 35 to Des Moines to return to Interstate 80. a trip from Cedar Rapids to Iowa City by car is 280 miles instead of the usual 20.

This disaster reminds me of the September 11th attacks, the Indian Ocean tsunami, and New Orleans after Hurricane Katrina. Believe it or not, I lived in northern Virginia during the September 11th attacks, the anthrax attacks, the serial sniper spree, and the Hurricane Isabel remnants. These other disasters I witnessed were also tragic in their own ways, but NONE of them destroyed such a large part of the infrastructure over such a wide area as the Iowa flood of 2008.

My advice on how to avoid flooding:
1. Live on high ground. I have always been afraid of floods, and I have always sought out high ground when looking for a place to live. You don’t need to be an expert on drainage systems or hydrology. You don’t need any special tools. Make sure you aren’t next to a creek or stream, and make sure you are at a land elevation substantially higher than all of the local creeks and streams and a fair distance away from them (particularly if the land is flat, as this means a slight rise in the water level goes a long way). Make sure that your home isn’t at a lower elevation than the surrounding land. Be sure that there are visible places for excessive water to drain to besides your home.
2. PLEASE do not live in a location that relies on a levee, dike, or dam for protection. These structures fail precisely when they are needed the most. Yes, I am aware that the Dutch would take offense at my statement, but the rest of the world does not have Dutch levels of expertise, maintenance, and construction quality.

I hope that when the rebuilding takes place here in Iowa, the role of wetlands will be taken more seriously here and across the entire world. Yes, the weather has been unusually wet since last winter. However, the destruction of wetlands over the decades exacerbates flooding, because nothing else absorbs excess water more effectively. If the land changes, then the old definitons of the 100-year floodplain and 500-year floodplain are no longer valid. What had been the 100-year floodplain might become the 10-year floodplain. To bring this post on-topic, if James “Mad Money” Cramer were put in charge of Berkshire Hathaway, it would cease to be a conservative stalwart blue chip, no matter how much CNBC touted Berkshire Hathaway’s past performance record.

I’ve also been shocked by the number of Iowa towns that are protected by levees. It’s one thing for one small and insignificant part of a river to be affected by levees. However, when there are levees along a large part of a river and not enough wetlands to absorb excess water, the swollen river has no place to go other than over its banks. I hope that the rebuilding takes place on higher ground that doesn’t rely on a levee for protection.

A few more thoughts:
1. If you are ever impacted by a disaster, PLEASE be on the lookout for scam artists. I’m hearing that the scammers are already out looking for desperate people to fleece.
2. I am amazed by the outpouring of support. When a need for sandbaggers is announced on TV, crowds of volunteers show up at that location in a matter of minutes. Many amateur radio operators are helping to provide communications at shelters and the local hospital. As an amateur radio operator myself, I will be helping at St. Luke’s tomorrow morning.

The world’s most undervalued currency

May 27, 2008 by dopplervalueinvesting

The world’s most undervalued currency is the Hong Kong dollar. Most of what I said in my previous post about the undervalued Japanese yen applies to an even greater degree for the Hong Kong dollar.

Hong Kong is a special administrative region of China. This means that China is responsible for Hong Kong’s defense and foreign policy while Hong Kong provides its own legal system, law enforcement, monetary system, and other domestic policies. Hong Kong was originally a territory of China that later was taken over by the British in the 1840s and the Japanese in the 1940s during World War II. After World War II, Hong Kong went back to British rule. In 1997, Hong Kong was handed back to China.

According to the Economist magazine’s Big Mac Index, a Big Mac costs an average of $3.41 USD here in the USA and an average of $12 HKD in Hong Kong. If the USD and HKD were at Purchasing Power Parity, $1 HKD would be worth 28.4 cents in USD. Based on the actual exchange rate, $1 HKD is worth 12.8 cents USD. This means that the Hong Kong dollar is selling for only 45% of Purchasing Power Parity against US dollars. That’s a steal! In fact, based on current exchange rates, no other currency is as cheap on a Purchasing Power Parity basis as the Hong Kong dollar.

It is amazing that the Hong Kong dollar is so incredibly cheap given all the factors that should make it sell at a premium to Purchasing Power Parity against the US dollar. Like Japan, the United States, Australia, Canada, and western Europe, Hong Kong is a rich First World economy with a high standard of living, stable government, and high wages. Natural resources are scarce in Hong Kong, and most of its food, energy, and other supplies must be imported.

Land is especially scarce in Hong Kong, especially after you consider that much of its small land area is too rugged for agriculture and other uses. According to the CIA World Factbook, Hong Kong’s population density is 6740 people per square km (7,018,636 people on 1042 square km of land), compared to 340 people per square km for Japan, 33.2 people per square km for the United States, 2.70 people per square km for Australia, and 3.65 people per square km for Canada. Thus, Hong Kong is not a place where you’d expect land, rents, wages, grain, beef, or other costs of running a McDonald’s restaurant to be cheap.

Why is the Hong Kong dollar cheaper than so many Second World and Third World currencies even though it belongs to a First World economy where wages, rents, commodities, and other costs are expensive? Since 1983, the Hong Kong dollar has been pegged to the US dollar at the rate of $1 USD=$7.8 HKD. Without the peg, the Hong Kong dollar would be considerably higher against the US dollar. The Hong Kong Monetary Authority uses Hong Kong dollars to purchase US dollars to artificially hold down the value of the Hong Kong dollar.

This currency peg will not remain forever. Every day that the Hong Kong Monetary Authority maintains the currency peg, it cedes control of its monetary policy to the US Federal Reserve. While the anti-inflationary Paul Volcker was the US Fed Chair when Hong Kong began the peg in 1983, the pro-inflationary “Helicopter Ben” Bernanke is the US Fed Chair today. Something will happen that will make the Hong Kong Monetary Authority to cease outsourcing monetary policy to Helicopter Ben. Perhaps the upward pressure on the Hong Kong dollar will become so strong that the Hong Kong Monetary Authority will no longer be able to hold down the value of its currency. Or perhaps the day will come when the costs of maintaining the currency peg exceed its benefits. Indeed, the Hong Kong economy is becoming increasingly linked to that of mainland China. Hong Kong may decide to drop the dollar peg in favor of a peg to the Chinese renminbi, another undervalued currency (only 46% of Purchasing Power Parity).

Why did I use an Everbank foreign currency CD to buy the Hong Kong dollar? Again, I am avoiding FOREX brokers due to doubts about their stability and lack of insurance as well as the fact that they are geared for hyperactive traders. Unlike the case with the Japanese yen, there is no Hong Kong dollar ETF. The Everbank foreign currency CD is the only way for reasonably conservative investors to purchase Hong Kong dollars. Everbank’s foreign currency CDs are FDIC-insured. Everbank is a conservatively run bank.

I am confident that when the current peg is dropped, the Hong Kong dollar will at least double in value. It won’t happen right away, but it will happen. Even if it takes a few years, it will be well worth it. A double in 2 years means an annualized return of 41.4%, a double in 3 years means an annualized return of 26.0%, a double in 4 years means an annualized return of 18.9%, and a double in 5 years means an annualized return of 14.9%. A double in 10 years means an annualized return of 7.2%, far better than what US Treasury Bills are likely to return.

Japanese yen

May 19, 2008 by dopplervalueinvesting

The Japanese yen is undervalued. A Big Mac is cheaper in Japan than here in the USA.

The magazine _The Economist_ uses the Big Mac Index to appraise currencies. The Big Mac Index is an indicator of Purchasing Power Parity. A Big Mac is considered to be representative of goods and services. Although I have been steering clear of the Golden Arches ever since the movie _Supersize Me_ grossed me out, the fact remains that the price of a Big Mac is representative of the cost of many local goods and services, such as land, rent, labor, energy, beef, and grain.

According to _The Economist_ magazine, a Big Mac costs an average of $3.41 USD here in the USA or 280 yen in Japan. Given a current exchange rate of $1 USD = 104.150 yen (10,000 yen = $96.01 USD), an American tourist visiting Japan would only need to convert $2.69 in USD to yen in order to buy a Big Mac. Thus, the tourist would pay 21% less for that Big Mac in Japan than in the USA.

If the US dollar and the Japanese yen were at purchasing power parity, the exchange rate would be $1 USD = 82.111 yen (10,000 yen = $121.79 USD). So the 10,000 yen that currently sells for $96.01 would be fairly valued at $121.79. Again, we can see that the Japanese yen is selling for 21% fewer US dollars than Purchasing Power Parity.

To relate currencies to stocks, the Purchasing Power Parity of a currency is analogous to the book value of a company’s stock. Of course, just as a stock price can remain substantially above or below book value, a currency can remain substantially above or below Purchasing Power Parity. One reason that this disparity can persist is the fact that the real world has substantial currency exchange fees and transportation costs. Additionally, certain countries have persistently higher or lower land prices, rents, wages, and commodity prices.

However, the Japanese yen relative to the US dollar is likely even cheaper than Purchasing Power Parity suggests. Japan has a much higher population density than the US. Land is scarce in Japan, especially after you consider the fact that most of the interior is mountainous and unable to support agricultural, industrial, or residential use. Thus, Japan is a nation with high land prices and high rent. As an industrialized First World nation (like the USA, Canada, western Europe, and Australia) with a high standard of living, Japan has high wages. Natural resources are scarce in Japan, so the nation must import heavily. Thus, one would expect almost everything, including Big Macs, to be more expensive in Japan than in the US. Thus, Purchasing Power Parity provides a very conservative appraisal of the yen.

Why is the Japanese yen so cheap? Because the Japanese economy still hasn’t recovered from the recession and stock market collapse of 1990, most of the the world has given up on Japanese stocks and businesses, and this holds down demand for yen. The other reason is the extremely low interest rates (well below 1%). Low interest rates discourage investment in Japanese debt instruments (bank CDs, corporate bonds/paper, government debt, etc.), also reducing demand for yen. Furthermore, low interest rates encourage both domestic and foreign investors to borrow Japanese yen and invest the money elsewhere for higher yields. Borrowing yen is the same thing as short-selling yen, and this selling pressure also conspires to drive down the yen relative to other currencies. This practice of borrowing money in one currency and investing it in another currency is called the carry trade.

The unwinding of the yen carry trade is a potential triggering mechanism for a rise in the value of the yen. In order to liquidate the yen carry trade, one must buy back yen in order to pay off the loan. Most estimates suggest that at least $1 trillion USD is being gambled on the yen carry trade. If a large number of speculators are simultaneously forced to liquidate their yen carry trades (due to falling financial markets elsewhere or any rise in Japanese interest rates), there will be much more demand for yen. This would boost the value of the yen and force more speculators to liquidate their yen carry trades. This “short squeeze” in the yen would become a chain reaction, like the program trading of US stocks on October 19th, 1987 but in reverse.

Why did I choose to buy FXY (Currencyshares Japanese Yen ETF) to bet on a rising yen? I do not recommend opening a FOREX brokerage account to trade currencies. Unlike the stock brokerage industry, the FOREX brokerage industry does not have SIPC insurance. FOREX brokerage firms are notorious for going under without warning and taking customers’ money down with them. Also, FOREX brokerage firms are geared towards extreme speculators. Given that leverage ratios of over 100:1 and multiple trades an hour are popular among FOREX traders, they make the Dot-Com daytraders of 1999-2000 look conservative in comparison. Everbank offers Japanese yen CDs, but the FXY ETF (which holds 10,000 yen per share) is much more liquid and convenient because it trades like a stock and is not subject to early withdrawal penalties.

Model Portfolio update: bought Hong Kong dollar CD

May 19, 2008 by dopplervalueinvesting

The Doppler Value Model Portfolio purchased a 3-month Hong Kong dollar CD from Everbank on Thursday, May 15th. According to http://www.exchange-rates.org, the exchange rate was $7.9950HKD/USD. So the $10,000 USD investment was $79,950.00 HKD. The currency conversion fee was 1%, or $100 USD. The interest rate is 1% for the current term.

To conform with the terms of a CD, the CD will roll over every 3 months unless I specify otherwise. Also, any interested earned will be reinvested in the new CD. If I decide to liquidate rather than roll over the CD, I will announce that on this blog at least a week in advance. The fee for converting the CD back into US dollars or into another currency will again be 1%. Interest will be earned in Hong Kong dollars and will be credited upon maturity. As is the case with the regular cash balance, interest will accrue daily.

The current CD will mature on Friday, August 15th, 2008. Assuming that I continue rolling over the CD, the subsequent maturity dates will be:
Friday, November 14th, 2008
Friday, February 13th, 2009
Friday, May 15th, 2009
Friday, August 14th, 2009
Friday, November 13th, 2009 (Yes, that’s Friday the 13th. I hope to get away from Jason on that day, but the only way I can do that is to have an out-of-body experience. Well, I’ll just have to deal with Jason myself.)

The $10,000 USD used to purchase the Hong Kong Dollar CD and the $100 USD currency conversion fee bring down the cash balance from $71,736.58 USD to $61,636.58 USD. The Doppler Value Model Portfolio now consists of:
$61,636.58 USD cash
$79,950.00 HKD Everbank CD
2 shares of Berkshire Hathaway Class B
222 shares of DFJ
103 shares of FXY